Waiters, Inc. has been manufacturing 10,000 units of part 2050 per month, which is used in manufacturing one of its products. At this level of production, the cost per unit to manufacture part 2050 follows:

                               Direct materials           $10.00

                               Direct labor                    25.00

                               Variable overhead          13.00

                               Fixed overhead               12.00

                               Total                              $60.00

Westbrook Company has offered the sell Waiters 10,000 units of part 2050 for $55 a unit. Waiters has determined that it could use the facilities presently used to manufacture part 2050 to manufacture produce RAC, which would generate an additional contribution margin per month of $50,000. Waiters also has determined that one-third of the fixed overhead will be incurred even if it purchases part 2050 from Westbrook and makes product RAC.

Required:

Determine whether or not Waiters should purchase from Westbrook. Assume that Waiters would take the opportunity to make product RAC.

Goran Grill Company makes a single product - a handmade                                                             specialty barbeque grill that sells for $600. Data for last year’s                                                          operations follow:

                                   

                                    Units in beginning inventory                           0

                                    Units produced                                     50,000

                                    Units sold                                                40,000

                                   

                       

                                    Variable costs per unit:

                                    Direct materials                                   $      150

                                    Direct labor                                                 120

                                    Variable manufacturing overhead              100

                                    Variable selling and administrative              30

                                    Total variable cost per unit                 $      400

                                    Fixed costs:

                                    Fixed manufacturing overhead        $1,500,000

                                    Fixed selling and administrative         600,000

                                    Total fixed costs                              $2,100,000

                                    Required:

1. Compute the unit product cost for one barbeque grill for absorption costing and variable costing.
2. Prepare an income statement for the year using the absorption costing approach.
3. Prepare an income statement for the year using the variable costing approach.
4. Explain the difference in operating income for the absorption and variable costing approaches.

Struggling with the bolded questions

Matt Holmes recently joined Klax Company as a staff accountant in the controller's office. Klax Company provides warehousing services for companies in several midwestern cities.

The location in Dubuque, Iowa, has not been performing well due to increased competition and the loss of several customers that have recently gone out of business. Matt's department manager suspects that the plant and equipment may be impaired and wonders whether those assets should be written down. Given the company's prior success, this issue has never arisen in the past, and Matt has been asked to conduct some research on this issue.

Instructions

If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses.

a.  

What is the authoritative guidance for asset impairments? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies).

360-10-05-4 shows that the authoritative guidance for asset impairments provides guidance for :

-recognition and measurement of the impairment of long-lived assets to be held and used.

-measurements of the long lived-asset to be disposed of by sale

-disclosures about the impairment or disposal of long lived assets and disposals of individually significant components of an entity

b.  

Give several examples of events that would cause an asset to be tested for impairment. Does it appear that Klax should perform an impairment test? Explain.

We can find the reasons that an asset would be tested for impairment in 360-10-35-21. They can be tested if:

-there is a large decrease in the market price of the long-lived asset

- if there is a big adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.

- A large adverse change in legal factors or in the business climate that could affect the value of a long-lived asset , including an adverse action or assessment by a regulator

- An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset

- current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset

- A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.

c.  

What is the best evidence of fair value? Describe alternate methods of estimating fair value.

The best evidence of fair value can be found in 360-10-35-36. This states that long-lived assets that are similar in uncertainties dealing with timing amount, an expected present value technique is typically the appropriate technique to estimate fair value.

Menlo Company distributes a single product. The company’s sales and expenses for last month follow:

	Total			Per Unit
Sales	$	302,000		$	20
Variable expenses		211,400			14
Contribution margin		90,600		$	6
Fixed expenses		75,600
Net operating income	$	15,000

Required:

1. What is the monthly break-even point in unit sales and in dollar sales?

2. Without resorting to computations, what is the total contribution margin at the break-even point?

3-a. How many units would have to be sold each month to attain a target profit of $31,800?

3-b. Verify your answer by preparing a contribution format income statement at the target sales level.

4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.

5. What is the company’s CM ratio? If sales increase by $90,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

What compensation plans are employed by Yum Brands! Inc,? Do you feel these roles play a strategic role in the success or failure of the company?

Use the May 31 fiscal year-end information from the following ledger accounts (assume that all accounts have normal balances).

General Ledger
M. Muncel, Capital			Acct. No. 301				Salaries Expense			Acct. No. 622
Date	PR	Debit	Credit	Balance			Date	PR	Debit	Credit	Balance
May 31	G2			83,000			May 31	G2			41,500
M. Muncel, Withdrawals			Acct. No. 302				Insurance Expense			Acct. No. 637
Date	PR	Debit	Credit	Balance			Date	PR	Debit	Credit	Balance
May 31	G2			48,000			May 31	G2			3,900
Services Revenue			Acct. No. 401				Rent Expense			Acct. No. 640
Date	PR	Debit	Credit	Balance			Date	PR	Debit	Credit	Balance
May 31	G2			146,246			May 31	G2			8,400
Depreciation Expense			Acct. No. 603				Income Summary			Acct. No. 901
Date	PR	Debit	Credit	Balance			Date	PR	Debit	Credit	Balance
May 31	G2			15,000

1. Prepare closing journal entries from the above ledger accounts.
2. Post the entries from Requirement 1 to the General Ledger accounts below. Use the transaction number from Requirement 1 as the date.

The Justice Corporation mass produces wooden chairs. The standard costs follow:

Plastic                                                  10 pounds at $4.50 per pound.

Molding                                                         3 feet at $3.00 per foot.

Direct labor                                              4 hours at $15.00 per hour.

Variable overhead                                         $3 per direct labor hour.

Fixed overhead                                          $.75 per direct labor hour.

                                  The static budget called for 80,000 direct labor hours in June.

Transactions during June follow:

• Justice purchased 200,000 pounds of plastic at $ 4.45 and issued 185,000 pounds to production.
• Justice purchased 60,000 feet of molding at $3.10 per foot and issued 50,000 feet to production.
• The direct labor payroll was 72,500 hours at $14.50.
• Overhead costs were $275,000 of which $221,125 was variable.
• Justice produced 18,000 chairs during the month.

                  Required:

1. Compute the direct materials, direct labor, variable overhead, and fixed overhead variances that were discussed in class.
2. Discuss the significance of the variances.

Select the relevant costs and other data from the following,
and calculate the All Source F&D Cost for Big Oil Co. on a BOE basis
(Use a 6 to 1 conversion ratio)
Big Oil Data for All Source F&D Calculation - Oil and Gas
Costs	$Millions
Unproved property acquisitions	$75
Exploration	$850
Development expenses	$900
Proved Property Acquisitions	$250
SG&A	$225
Interest payments	$75
Oil Reserve Additions	Million Barrels
Oil reserve discoveries and extensions	105	MMBO
Oil revisions	5	MMBO
Acquisitions	10	MMBO
Gas Reserve Additions	Bcf
Gas discoveries	165	Bcf
Gas revisions	5	Bcf
Acquisitions	30	Bcf

What goals are attempted to be accomplished by the presentation of the cash flow statement to investors?

Discuss how the format of the Cash flow statement may have contributed towards meeting its objectives.

Identify the following as an asset, liability, or equity by writing the letter of the correct classification in the space provided.

-A.B.C. Accounts payable -A.B.C. Accounts receivable -A.B.C. Unearned revenue -A.B.C. Common stock

A. Liability B. Asset C. Equity

Under normal conditions, Sarah spends $8.40 per unit of materials, and it will take 3.6 units of material per pair of shoes. During July, Sole Purpose Shoe Company incurred actual direct materials costs of $63,810 for 7,090 units of direct materials in the production of 2,175 pairs of shoes.

Complete the following table, showing the direct materials variance relationships for July for Sole Purpose Shoe Company. If required, round your answers to two decimal places. When entering variances, use a negative number for a favorable cost variance

A variance that occurs when the actual cost is less than standard cost.

, and a positive number for an unfavorable cost variance

A variance that occurs when the actual cost exceeds the standard cost.

.

Actual Cost								Standard Cost
Actual Quantity	X	Actual Price		Actual Quantity	X	Standard Price		Standard Quantity	X	Standard Price
	X				X
	=				=				=
			selector 1Unfavorable Favorable Unfavorable Direct Materials selector 2Price Time Rate Quantity Cost Price Variance:				selector 3Favorable Unfavorable Favorable Direct Materials selector 4Quantity Price Time Rate Cost Quantity Variance:
					selector 5Favorable Favorable Unfavorable Total Direct Materials selector 6Cost Cost Price Time Quantity Rate Variance:
You are in Column Actual Cost	You are in Column Actual Cost	You are in Column Actual Cost						You are in Column Standard Cost	You are in Column Standard Cost	You are in Column Standard Cost

Points:

Feedback

Check My Work

Explanation

none

X

Direct Labor

Under normal conditions, Sarah pays her employees $8.50 per hour, and it will take 2.8 hours of labor per pair of shoes. During August, Sole Purpose Shoe Company incurred actual direct labor costs of $65,340 for 7,260 hours of direct labor in the production of 2,100 pairs of shoes.

Complete the following table, showing the direct labor variance relationships for August for Sole Purpose Shoe Company. If required, round your answers to two decimal places. When entering variances, use a negative number for a favorable variance, and a positive number for an unfavorable variance.

Actual Cost								Standard Cost
Actual Hours	X	Actual Rate		Actual Hours	X	Standard Rate		Standard Hours	X	Standard Rate
	X				X
	=				=				=
			selector 1 Favorable Unfavorable Direct Labor selector 2 Quantity Price Cost Time Rate Variance:				selector 3 Favorable Unfavorable Direct Labor selector 4 Quantity Rate Price Time Cost Variance:
					selector 5 Unfavorable Favorable Total Direct Labor selector 6 Cost Rate Quantity Time Price Variance:
You are in Column Actual Cost	You are in Column Actual Cost	You are in Column Actual Cost

The following units and costs of lawnmower Model 200 were available for sale during the year for Craftsman Hardware:

Beginning inventory ……………..	10 units at $130
First purchase ……………………	15 units at $135
Second purchase ………………..	30 units at $140
Third purchase ……………………	20 units at $145

Craftsman has 35 units on hand at the end of the year. What is the dollar amount of cost of goods sold for the year according to the first-in, first-out method?

Prepare journal entries to record the following merchandising transactions of Cabela’s, which uses the perpetual inventory system and the gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on July 1 in Accounts Payable—Boden.)

July		1		Purchased merchandise from Boden Company for $6,900 under credit terms of 2/15, n/30, FOB shipping point, invoice dated July 1.
		2		Sold merchandise to Creek Co. for $950 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost $575.
		3		Paid $135 cash for freight charges on the purchase of July 1.
		8		Sold merchandise that had cost $2,200 for $2,600 cash.
		9		Purchased merchandise from Leight Co. for $2,500 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9.
		11		Received a $500 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9.
		12		Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.
		16		Paid the balance due to Boden Company within the discount period.
		19		Sold merchandise that cost $1,000 to Art Co. for $1,500 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19.
		21		Issued a $250 credit memorandum to Art Co. for an allowance on goods sold on July 19.
		24		Paid Leight Co. the balance due, net of discount.
		30		Received the balance due from Art Co. for the invoice dated July 19, net of discount.
		31		Sold merchandise that cost $5,700 to Creek Co. for $6,800 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31.

You are part of a team responsible for implementing an activity-based costing system. Some of the members do not understand the steps involved in implementing such a system. Prepare a summary showing your team members the steps involved and a brief description of each step that are completed in the process.

INDIANA CORPORATION

…… is a bakery that is known for its strawberry cheesecake. It also makes 12 different kinds of cheesecake as well as many other types of bakery items. The company uses normal costing with direct-labor dollars as their base for allocating overhead to its various bakery products.

The company estimates overhead for the upcoming year of $421,000 and estimates direct labor of $2,000,000.

The following estimated information is available for their Strawberry Cheesecake product:

Annual production	17,500 units
Direct materials per unit	$6
Direct labor per unit	$2

Required:

1. Compute the predetermined rate (overhead per dollar of labor) – Round this to TWO decimal places

2. Determine the amount of estimated overhead applied to one unit of strawberry cheesecake (one cake) AND the estimated amount of overhead to be applied to that product line for the year

3. What is the total estimated unit cost of the strawberry cheesecake?

NOW consider the following additional information about the estimated overhead of $421,000. You have analyzed this amount, and determined that the following breakdown and have identified appropriate activities that appear to cause, or drive these costs, as follows:

Overhead Cost Proposed Driver Materials ordering $ 72,000 Number of purchase orders Materials inspection 75,000 Number of receiving reports Equipment setup 105,000 Number of setups Quality control 69,000 Number of inspections Other 100,000 Direct labor cost Total manufacturing overhead $421,000 (estimated)

ASSUME that the following amounts of various cost drivers will be used for all products and for the Strawberry Cheesecake product:

Activity All Products Strawberry Cheesecake Materials ordering 8,000 orders 100 Materials inspection 375 receiving reports 60 Equipment setup 3,000 setups 30 Quality control 3,000 inspections 150 Other $2,000,000 direct labor $35,000

	Briefly explain the process which the company went through in order to arrive at the overhead information AND activity/driver information provided immediately above. Given this additional information, do you still like the unit costs and estimated product costs for the year that you computed in #2 and #3 above? If not, explain WHY. Does the cost assignment above reflect the actual consumption of resources by the Strawberry Cheesecake product? Using ACTIVITY BASED COSTING and the information above. What new unit cost and estimated product cost would you propose management use? WHY is this preferable? Was the Strawberry Cheesecake mis-costed by using the “peanut butter costing” approach? If so, was it under- or over-costed AND by how much per unit? Using the original allocation base of direct labor hours, what percentage of the overhead costs were being assigned to the Strawberry Cheesecake? Compute the consumption rates of Strawberry Cheesecake for the activities indicated. What area or areas appear to be the “problem areas” in terms of product costing? Explain WHY, in plain English, your answer came out the way it did. WHY did ABC provide a better allocation in this case?